Volatility Anomalies: IVOL and Vol-of-Vol
Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high [...]
Deep Dive into the Value Factor
The financial equivalent of the famous Miller Lite, “tastes great, less filling” debate is the debate between traditional financial economics which uses risk theories to [...]
Investment Strategy in an Uncertain World
In 1921, University of Chicago Professor Frank Knight wrote the classic book “Risk, Uncertainty, and Profit.” An article from the Library of Economics and Liberty [...]
The Momentum of News
Since the development of the capital asset pricing model (CAPM) in the 1960s, hundreds of anomalies (what John Cochrane famously called a “zoo of new [...]
Why the Size Premium Should Persist
As the chief research officer for Buckingham Strategic Wealth and The BAM Alliance, I’m often asked, after any asset class or factor experiences a period [...]
“The Failure of Factor Investing was Predictable”
In a recent ETF column, Allan Roth listed five investment lessons. While I agreed with much of what he wrote, one claim—factor investing has “failed [...]
Discipline: A Necessary Condition for Successful Investing
A good friend, Sherman Doll, related the following story. Sherman has been a two-line sport kite flier for years. While not a pro, he has [...]
Is Active Alpha Enough to Cover Taxes?
Each time S&P Dow Jones Indices publishes its latest Active Versus Passive Scorecard, the persistent failure of the vast majority of actively managed funds to [...]
How a Multi-factor Portfolio is Constructed Matters
The CAPM was the first formal asset-pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected [...]
How Leverage Constraints Effect Mutual Fund Risk Taking
The 2014 study by Andrea Frazzini and Lasse Heje Pedersen, “Betting Against Beta,” found strong support for low-beta strategies. I’ve previously written on low-beta strategies [...]
The Carry Factor and Global Risks
The carry factor is the tendency for higher-yielding assets to provide higher returns than lower-yielding assets — it is a cousin to the value factor, [...]
The Value Effect and Macroeconomic Risk
It has been well-documented that value stocks have provided higher expected returns than growth stocks. However, there is a great debate about the source of [...]
The Tax Efficiency of Long-Short Strategies
Conventional wisdom can be defined as ideas that are so accepted that they go unquestioned. Unfortunately, conventional wisdom is often wrong. Two great examples are [...]
The Returns to Value Strategies When Valuation Spreads Are Wide (Deep Value)
The academic research has generally found valuations, such as the earnings yield (E/P) (or the CAPE 10 earnings yield) and valuation spreads, have predictive value [...]
Factor Timing Investigation: Interest Rates, Value Spreads, and Factor Premiums
Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of [...]
Short Term Momentum and Long Term Reversals Can Coexist
In their seminal 1993 paper, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Narasimhan Jegadeesh and Sheridan Titman reported significant returns [...]
Diversification Benefits of Time Series Momentum
Similar to some better-known factors like size and value, time-series momentum is a factor that historically has demonstrated above average excess returns. Time-series momentum, also called trend-momentum or absolute momentum, is measured by a portfolio long assets that have had recent positive returns and short assets that have had recent negative returns. Compare this to the traditional (cross-sectional) momentum factor that considers recent asset performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns.
Do Security Analyst Recommendations Bet on or Against Academic Findings?
As my co-author Andrew Berkin, the director of research for Bridgeway Capital Management, and I explain in our new book, “Your Complete Guide to Factor-Based [...]
Active Share: Does it Predict Fund Performance?
The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform [...]
The Value Premium: Risk or Mispricing?
One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your [...]